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Film and the digital media tax credit in Canada and the SR&ED research credit ( Canada's Scientific Research and Experimental Development Program ) have an interesting overlap. That overlap is... FINANCING. Let's dig into sr&ed and video film production credits and the financing of those credits.
Yes, there is no business like the tax credit business (as the song goes?!) And when it comes to financing these two programs, there are some remarkable similarities... and benefits.
A tax credit in Canada can come in many forms .- they are essentially ' incentives ' that allow public policy in certain industries ( in our case ' research ' and ' film ' ) to provide a benefit that might otherwise not exist. And when those credits are' refundable ' in the form of real dollars, the benefits truly kick in as you recoup funds for such things as labour expenditures.
Let's first take a look at the SR ED tax (‘SR&ED’) program. For over 60 years in some form, it encourages businesses of any size to research business benefits. In Canada, billions of dollars each year are sent to firms who participate in the program, reflecting businesses of all sizes, including start-ups, by the way. Claimants in this program are approaching 20,000 firms annually, by the way.
Of course, the program's spirit is to allow firms such as yours to take products and services globally, enhancing Canada's reputation along the way. The major areas of expense recovery under your claim include labour, contractors, and overheads directly attributable to the R&D you are carrying on. Computer programming is often a large part of many claims and has helped make many software firms successful.
While a small number of firms choose to prepare their claim themselves, SRED CONSULTANTS does most of the work done in Canada in SR&ED prep. It's their job to sort through areas of experiments, research and to determine what’s eligible and what’s not, including summarizing that activity.
The area of ' FILM, ' such as the video production tax credit and interactive digital media, which includes movies, documentaries, television, and the hot new digital animation area, is the other large beneficiary of a tax credit. These credits attract producers and owners to Canada, and the credit has proven to create jobs and tax revenue and an overall ' stimulus ' to Canada's reputation and economy.
When it comes to the financing puzzle of putting together a film project, over 35% of any project can be fully financed via film and animation tax credits.
When we talked about refundable ' SR&ED ' credits, we covered the role of the SRED Consultant. When it comes to the film industry, that role is shared by a ' Tax credit Accountant. ' They maximize the percentage available to your project... allowing producers and owners to ensure maximum benefit is being taken into account under the program.
The programs, by the way, are a combo of federal and provincial incentives. Knowing what amounts are available from what province under which program is key!
We spoke of the ' overlap ' of these two seemingly different programs. But whether it's the ' white coat' scientist in the lab or the movie producer shooting in the field, or the digital engineer working on an animation project, the bottom line is that refundable tax credits in each program are financeable!
More similarity exists in how the credits are financed, typically 75% loan to value, and structured as a bridge loan with no payments. Financing can also potentially occur before the tax credit certificate, and your financials have been filed.
CONCLUSION
The ability to finance federal and provincial corporate tax incentives is a solid benefit for many business owners. If you're looking to monetize an ' SRED ' claim or a film, TV, or transmedia digital tax credit, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you in monetizing your claim for maximum benefit.
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Stan Prokop
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